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Mortgage Banking Activities (Tables)
 6 Months Ended
Jun. 30, 2017
Mortgage Banking Activities [Abstract]  
Analysis of Changes in Fair Value MSRs
Table 8.1 presents the changes in MSRs measured using the fair value method.
Table 8.1: Analysis of Changes in Fair Value MSRs
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2017

 
2016

 
2017

 
2016

Fair value, beginning of period
$
13,208

 
11,333

 
$
12,959

 
12,415

Servicing from securitizations or asset transfers (1)
436

 
477

 
1,019

 
843

Sales and other (2)
(8
)
 
(22
)
 
(55
)
 
(22
)
Net additions
428

 
455

 
964

 
821

Changes in fair value:
 
 
 
 
 
 
 
Due to changes in valuation model inputs or assumptions:
 
 
 
 
 
 
 
Mortgage interest rates (3)
(305
)
 
(779
)
 
(153
)
 
(1,863
)
Servicing and foreclosure costs (4)
(14
)
 
(4
)
 
13

 
23

Prepayment estimates and other (5)
(41
)
 
(41
)
 
(46
)
 
59

Net changes in valuation model inputs or assumptions
(360
)
 
(824
)
 
(186
)
 
(1,781
)
Changes due to collection/realization of expected cash flows over time
(487
)
 
(568
)
 
(948
)
 
(1,059
)
Total changes in fair value
(847
)
 
(1,392
)
 
(1,134
)
 
(2,840
)
Fair value, end of period
$
12,789

 
10,396

 
$
12,789

 
10,396

(1)
Includes impacts associated with exercising our right to repurchase delinquent loans from GNMA loan securitization pools.
(2)
Includes sales and transfers of MSRs, which can result in an increase of total reported MSRs if the sales or transfers are related to nonperforming loan portfolios.
(3)
Includes prepayment speed changes as well as other valuation changes due to changes in mortgage interest rates (such as changes in estimated interest earned on custodial deposit balances).
(4)
Includes costs to service and unreimbursed foreclosure costs.
(5)
Represents changes driven by other valuation model inputs or assumptions including prepayment speed estimation changes and other assumption updates. Prepayment speed estimation changes are influenced by observed changes in borrower behavior and other external factors that occur independent of interest rate changes.
Analysis of Changes in Amortized MSRs
Table 8.2 presents the changes in amortized MSRs.
 
Table 8.2: Analysis of Changes in Amortized MSRs
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2017

 
2016

 
2017

 
2016

Balance, beginning of period
$
1,402

 
1,359

 
$
1,406

 
1,308

Purchases
26

 
24

 
44

 
45

Servicing from securitizations or asset transfers
37

 
38

 
82

 
135

Amortization
(66
)
 
(68
)
 
(133
)
 
(135
)
Balance, end of period (1)
$
1,399

 
1,353

 
$
1,399

 
1,353

Fair value of amortized MSRs:
 
 
 
 
 
 
 
Beginning of period
$
2,051

 
1,725

 
$
1,956

 
1,680

End of period
1,989

 
1,620

 
1,989

 
1,620

(1)
Commercial amortized MSRs are evaluated for impairment purposes by the following risk strata: agency (GSEs) for multi-family properties and non-agency. There was no valuation allowance recorded for the periods presented on the commercial amortized MSRs.
Managed Servicing Portfolio
We present the components of our managed servicing portfolio in Table 8.3 at unpaid principal balance for loans serviced and subserviced for others and at book value for owned loans serviced.
 
Table 8.3: Managed Servicing Portfolio
(in billions)
Jun 30, 2017

 
Dec 31, 2016

Residential mortgage servicing:
 
 
 
Serviced for others
$
1,189

 
1,205

Owned loans serviced
343

 
347

Subserviced for others
4

 
8

Total residential servicing
1,536

 
1,560

Commercial mortgage servicing:
 
 
 
Serviced for others
475

 
479

Owned loans serviced
130

 
132

Subserviced for others
8

 
8

Total commercial servicing
613

 
619

Total managed servicing portfolio
$
2,149

 
2,179

Total serviced for others
$
1,664

 
1,684

Ratio of MSRs to related loans serviced for others
0.85
%
 
0.85
Mortgage Banking Noninterest Income
Table 8.4 presents the components of mortgage banking noninterest income. 
Table 8.4: Mortgage Banking Noninterest Income

 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
 
2017

 
2016

 
2017

 
2016

Servicing income, net:
 
 
 
 
 
 
 
 
Servicing fees:
 
 
 
 
 
 
 
 
Contractually specified servicing fees
 
$
900

 
949

 
$
1,807

 
1,903

Late charges
 
44

 
42

 
92

 
90

Ancillary fees
 
59

 
54

 
109

 
115

Unreimbursed direct servicing costs (1)
 
(121
)
 
(203
)
 
(244
)
 
(356
)
Net servicing fees
 
882

 
842

 
1,764

 
1,752

Changes in fair value of MSRs carried at fair value:
 
 
 
 
 
 
 
 
Due to changes in valuation model inputs or assumptions (2)
(A)
(360
)
 
(824
)
 
(186
)
 
(1,781
)
Changes due to collection/realization of expected cash flows over time
 
(487
)
 
(568
)
 
(948
)
 
(1,059
)
Total changes in fair value of MSRs carried at fair value
 
(847
)
 
(1,392
)
 
(1,134
)
 
(2,840
)
Amortization
 
(66
)
 
(68
)
 
(133
)
 
(135
)
Net derivative gains from economic hedges (3)
(B)
431

 
978

 
359

 
2,433

Total servicing income, net
 
400

 
360

 
856

 
1,210

Net gains on mortgage loan origination/sales activities
 
748

 
1,054

 
1,520

 
1,802

Total mortgage banking noninterest income
 
$
1,148

 
1,414

 
$
2,376

 
3,012

Market-related valuation changes to MSRs, net of hedge results (2)(3)
(A)+(B)
$
71

 
154

 
$
173

 
652

(1)
Includes costs associated with foreclosures, unreimbursed interest advances to investors, and other interest costs.
(2)
Refer to the analysis of changes in fair value MSRs presented in Table 8.1 in this Note for more detail.
(3)
Represents results from economic hedges used to hedge the risk of changes in fair value of MSRs. See Note 12 (Derivatives Not Designated as Hedging Instruments) for additional discussion and detail.
Analysis of Changes in Liability for Mortgage Loan Repurchase Losses

Table 8.5 summarizes the changes in our liability for mortgage loan repurchase losses. This liability is in “Accrued expenses and other liabilities” in our consolidated balance sheet and adjustments to the repurchase liability are recorded in net gains on mortgage loan origination/sales activities in “Mortgage banking” in our consolidated income statement.
Because of the uncertainty in the various estimates underlying the mortgage repurchase liability, there is a range of losses in excess of the recorded mortgage repurchase liability that is reasonably possible. The estimate of the range of possible loss for representations and warranties does not represent a probable loss, and is based on currently available information, significant judgment, and a number of assumptions that are subject to change. The high end of this range of reasonably possible losses exceeded our recorded liability by $167 million at June 30, 2017, and was determined based upon modifying the assumptions (particularly to assume significant changes in investor repurchase demand practices) used in our best estimate of probable loss to reflect what we believe to be the high end of reasonably possible adverse assumptions.
Table 8.5: Analysis of Changes in Liability for Mortgage Loan Repurchase Losses
 
Quarter ended June 30,
 
 
Six months ended June 30,
 
(in millions)
2017

 
2016

 
2017

 
2016

Balance, beginning of period
$
222

 
355

 
$
229

 
378

Provision for repurchase losses:
 
 
 
 
 
 
 
Loan sales
6

 
8

 
14

 
15

Change in estimate (1)
(45
)
 
(89
)
 
(53
)
 
(108
)
Net reductions
(39
)
 
(81
)
 
(39
)
 
(93
)
Losses
(5
)
 
(19
)
 
(12
)
 
(30
)
Balance, end of period
$
178

 
255

 
$
178

 
255

(1)
Results from changes in investor demand and mortgage insurer practices, credit deterioration and changes in the financial stability of correspondent lenders.